China’s Citic Buys Stake in U.S. Brokerage BTIG

Citic Securities Co. (600030), China’s
largest brokerage by market value, acquired a stake in U.S. firm
BTIG LLC as it seeks a bigger foothold in offering equities
trading for overseas institutional investors.

The Chinese investment bank is making the investment
through its Hong Kong-based CLSA unit, BTIG said yesterday in a
statement. New York-based BTIG, which has more than 450
employees, will continue operating independently. The financial
terms and stake size weren’t disclosed.

The investment in BTIG, which offers equity, options and
foreign-exchange trading, is the latest step in Beijing-based
Citic’s international expansion as it seeks to compete with
rivals such as Goldman Sachs Group Inc. The transaction builds
on the CLSA acquisition, which cost about $1 billion and gave
Citic a brokerage with more than 1,500 employees located in 21
cities across Asia, Europe and the U.S.

“The deal demonstrates Citic’s determination to expand
overseas,” Fanny Chen, a Hong Kong-based analyst at Haitong
International Securities Group, said by phone. “It will further
cement Citic Securities’ leading position in China’s brokerage
industry. A large overseas operation is a great advantage” as
China opens up its capital markets, she said.

Since Steve Starker, a former Goldman Sachs partner, and
ex-Bank of America Corp. equities chief Scott Kovalik founded
BTIG a decade ago, the stock-trading firm has opened offices
across the U.S. and in Europe and Australia. BTIG plans to use
the funds to add to its research and banking businesses, Starker
said in a phone interview.

Main Business

“Many have concluded that electronic trading is more
profitable, and the reality is there is still a need for high-touch service,” said Starker, 48. “Our model is all about
relationship, trust, service and liquidity.”

BTIG’s main business is trading big blocks of stock for
hedge funds and other institutional clients. The firm has been
expanding as rivals shrink or close. The pool of stock-trading
fees on Wall Street has dwindled by 33 percent since 2009 to
$9.3 billion a year, Greenwich Associates said last year.

BTIG has gained market share in equities and is looking to
repeat that in other asset classes, Starker said.

The BTIG stake purchase won’t affect CLSA’s business in the
Americas, Jonathan Slone, CLSA’s Hong Kong-based chief executive
officer, wrote in an e-mailed response to questions.

The transaction “is consistent with our growth strategy
for the U.S. market,” Slone said. CLSA, whose traders are
primarily based in Asia, has had a representative office in New
York to serve U.S.-based fund managers for the past 25 years.

Goldman Ties

BTIG’s Starker joined New York-based Goldman Sachs in 2000
when it bought brokerage Spear, Leeds & Kellogg, where he helped
run the capital markets business. Kovalik, 49, rose to head of
equity trading at Montgomery Securities, which was acquired by a
Bank of America predecessor in 1997. The two left to found their
own firms, then merged them.

BTIG started an interest-rates trading business last year
and has been hiring analysts to provide research to clients. The
firm last year helped manage the initial public offering of
dance-music company SFX Entertainment Inc.

Citic, founded in 1995, says on its website that its
largest shareholder is government-owned Citic Group Corp. The
parent company was established in 1979 by Rong Yiren -- who went
on to become a vice president of China -- to support former
leader Deng Xiaoping’s experiment with open markets. Its
businesses span banking to real estate and oil exploration, and
the group reports directly to China’s cabinet.

Goldman Sachs bought part of BTIG in 2008. The investment
bank still owns a minority interest, Starker said. BTIG is a
closely held company and doesn’t disclose its financial results.

After taking a 19.9 percent stake in CLSA in 2012 for
$310.3 million, Citic paid $841.7 million for the rest, not
including Taiwan operations.